The U.S. equity markets witnessed tough times in early 2023. But this may soon change as the Federal Reserve chairman expects inflation to ease in 2023.
With investor sentiment improving, the growth stocks CrowdStrike Holdings (CRWD 2.03%), Advanced Micro Devices (AMD 1.14%), Snowflake (SNOW -1.93%), and UiPath (PATH 1.09%) could be attractive picks in February.
1. CrowdStrike
With the number and cost of cybercrimes rising, cybersecurity has emerged as a necessity for businesses.
The global cybersecurity market is expected to grow from $155.8 billion in 2021 to $376.3 billion in 2029, according to Fortune Business Insights. CrowdStrike, a leader in cloud-native endpoint security solutions, has seen stellar performance in customer acquisition and retention, upselling, and cross-selling even during the current precarious macroeconomic times.
The company ended the third quarter (on Oct. 31, 2022) with 21,146 subscription customers, up 44% on a year-over-year basis. It also reported a dollar-based retention rate of more than 120% for the past 16 quarters, and a gross retention rate of over 95% for the past 18 quarters. With 60% of its subscription customers using five or more of the company's modules, CrowdStrike's platform is very sticky.
In case of a severe economic slowdown, delayed corporate decision-making could lengthen sales cycles, which could hurt CrowdStrike's top line in the short run. But considering the strength of its business model and balance sheet (cash of $2.5 billion and debt of around $770 million), the company seems to offer a buying opportunity in the long term.
2. Advanced Micro Devices
AMD is a semiconductor stock better positioned to face macroeconomic uncertainty than its competitors are.
First, AMD is less dependent on the personal computer business (which fluctuates with consumer spending) and earns more than half of its revenue from the rapidly growing data center and embedded (single-task) businesses.
Second, with its EPYC processors being superior in performance and energy efficiency compared to the competition, hyperscalers have been increasingly using them in high-performance computing -- a market estimated to be worth $49.9 billion by 2027.
Third, AMD's Xilinx acquisition has made the company a leading player in field-programmable gate arrays and adaptive system-on-chips, technologies that enable reprogramming and reconfiguring circuits and devices based on real-time needs. These technologies have widespread use in areas such as artificial intelligence, communications infrastructure, and cloud computing.
Lastly, the company has a solid balance sheet with $5.9 billion in cash and $2.9 billion in debt.
3. Snowflake
Snowflake's cloud-based data platform aims to integrate enterprise data across workloads, business functions, and data vendors at a centralized location in a reliable and secure manner.
The company's platform, which can operate across different cloud providers, enables clients to use artificial intelligence and machine-learning algorithms for analyzing data and for sharing it with partners.
The company's consumption-based business model might also help reduce customer churn rates in the current uncertain economy. Snowflake also introduced the Snowpark developer platform, which enables users to build customized applications directly onto the Snowflake data cloud.
The company managed to surpass consensus estimates for revenue and adjusted earnings per share in the third quarter (ended Oct. 31, 2022), demonstrating the strength of Snowflake's business model. The dollar-based net revenue retention rate of more than 160% for the past five quarters highlights the success of the company's land-and-expand strategy and the stickiness of its platform. A potential recession can threaten near-term growth prospects, but the long-term story is intact.
4. UiPath
UiPath is a leader in robotic process automation. Its low-code software tools help organizations automate repetitive tasks easily, resulting in higher efficiency and savings in time and money for its clients.
UiPath made 1,020 new customer wins in the past year and ended its third quarter with 10,650 customers. The company's annual recurring revenue, a key performance metric for a software-as-a-service (SAAS) company, jumped 36% year over year to $1.1 billion at the end of the quarter.
The dollar-based net retention rate of 126% shows the stickiness of the company's offerings. And a solid balance sheet with cash of $1.7 billion and negligible debt can be a buffer in difficult times.
A potentially deep recession poses risks to the company from reduced corporate spending and a longer sales cycle, but it is hard to overlook UiPath's value proposition and strong financial metrics.
